Julius Baer Lowers Its Sights as Markets Douse Long Expansion

(Bloomberg) -- Market realities are catching up with Julius Baer Group Ltd.’s Bernhard Hodler.

Brought in after a decade of rapid expansion at Switzerland’s third-largest wealth manager, the bank’s chief executive officer is confronting the slowdown. He cut financial targets and pledged cost reductions that include eliminating about 140 jobs after assets under management shrank last year.

Julius Baer dropped as much as 5.2 percent in Zurich trading, extending the decline over the last 12 months to 41 percent. Declining stock markets in the second half shaved 22 billion francs ($22.1 billion) off of assets under management, canceling out 17.4 billion francs of net new money, during the year, the bank said in a statement on Monday.

The Swiss wealth manager set less ambitious targets for profitability and costs, pledging to cut 100 million francs from annual expenses. The bank’s cost-to-income ratio in the second half was the worst in at least six years.

It’s been a tumultuous year for one of Switzerland’s largest wealth managers. Julius Baer’s shares fell more than any other major Swiss company in 2018 while the private bank grappled with reputational issues tied to a former star banker embroiled in a Venezuelan money laundering case, as well as the departure of key relationship managers.

Julius Baer net income fell to 330 million francs in the second half compared with 402 million francs a year earlier. Profit margins also narrowed significantly in the six-month period. The bank may need to deepen cost cuts if the market worsens this year, Hodler said at a press conference.

“The results are disappointing across the board," Zuercher Kantonalbank analyst Michael Kunz said in a note to clients. Although Julius Baer had already flagged that tough markets would take a toll on earnings, "the extent is surprising," he said.

Cost Pledges

Hodler, who took over as CEO after the surprise departure of Boris Collardi in 2017, pledged cost initiatives in November after Julius Baer missed a cost-to-income ratio target. Chairman Daniel Sauter, meanwhile, announced his departure last month and will be replaced by Romeo Lacher in April, subject to shareholder approval.

Hodler on Monday said client activity has picked up this year and the bank wants to hire relationship managers at the same pace as it did in 2018. In the second half, Julius Baer attracted more net new money than UBS Group AG, which is around six times bigger.

Julius Baer will take part in either large or small mergers and acquisitions activity in the next 12 to 24 months, Hodler said.

Margins are under pressure for many wealth managers due to low to negative interest rates, higher compliance costs and the end of Switzerland’s banking secrecy. Julius Baer said it aims to reduce its cost-to-income ratio to below 68 percent by the time it releases financial results in 2020. It previously set a range of 64 percent to 68 percent for the ratio, which is calculated using operating expenses excluding provisions and losses.

Project Atlas

Julius Baer’s breakneck pursuit of new money over the past decade raised questions inside the Swiss bank about whether customers had been properly vetted. It launched Project Atlas to determine whether the assets it holds are clean and sufficiently tracked, Bloomberg first reported in September.

The review uncovered some “bad apples,” which had an impact on net new money the bank attracted last year, Hodler said in a press conference on Monday. The process is about two-thirds complete and is expected to finish this year, he said.

Julius Baer rival Credit Suisse Group AG has yet to report full-year results and UBS Group AG, the world’s largest wealth manager, saw $8 billion in outflows in the fourth quarter in wealth management while profits missed analysts estimates.

Other highlights:

  • Assets under management fell to 382 billion francs
  • Net new money grew 3.8 percent in the second half vs 6.7 percent a year earlier
  • Proposed dividend 1.50 francs, a 7 percent increase
  • Net income rose 4 percent to 735 million francs in the full year
  • Initiated a structural cost reduction to absorb revenue fluctuations from potential market headwinds over the medium term
  • CET1 capital ratio 12.8 percent
  • Link to statement

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